Amazon drives FMCG bargain, offers discounts upto 50 per cent

“We are a marketplace and pricing is completely at the seller’s discretion. We cannot comment on their behalf,” an Amazon spokesperson told ET.Writankar Mukherjee | ET Bureau | October 04, 2016, 08:03 IST

KOLKATA: Amazon is offering discounts of up to 50 per cent on fast-moving consumer goods such as shampoos, soaps, shower gels, detergents, diapers and instant noodles to build customer loyalty, marking the first time prices have been cut so sharply for items of daily consumption.

The move is a precursor to Amazon’s entry into food ecommerce following the government’s recent decision to allow 100 per cent foreign direct investment (FDI) in the sector, said three people with knowledge of the matter.

It’s also in line with Amazon’s global focus on daily consumption needs like packaged food, personal care, nutrition, home and laundry care. “Consumables are the biggest focus category for Amazon, since there is scope to get a larger share of the consumer’s wallet on a more frequent basis,” said one of the people cited above.

Discounts to continue“Amazon wants to gain maximum share in this segment via discounting before it starts its own operations through FDI route,” the person said.

This is separate from Amazon’s ongoing festive season sale and it will continue to offer discounted prices across most popular brands throughout the year. All discounts are offered by the sellers, in line with the rules, with the Amazon India team pushing the mandate, the executives said.

“We are a marketplace and pricing is completely at the seller’s discretion. We cannot comment on their behalf,” an Amazon spokesperson told ET.

India has a complex policy on retail. It doesn’t allow foreign companies to invest in retail outlets or online companies that sell multiple products and brands, fearing their deep pockets will kill neighbourhood stores. However, it allows 100 per cent FDI in marketplaces that run platforms on which buyers and sellers connect.

Such marketplaces are not allowed to influence prices directly or indirectly and no single seller can sell more than 25 per cent of the value of the total goods sold on the platform. Amazon and Flipkart follow this model.

Representatives of three leading FMCG companies said they were not offering any special discount to any ecommerce entity other than what’s available to all retailers. They didn’t want to be identified.

Amazon is driving the FMCG focus through its biggest sellers, including Cloudtail, which is a joint venture between Amazon and Infosys cofounder Narayana Murthy’s investment vehicle Catamaran.

One seller said his company is selling some FMCG products at cost or even at a marginal loss to drive customer traffic and build loyalty, but on the whole the business will remain profitable. “Amazon too is helping us to structure the business so that it remains profitable,” said the person.

Rivals take stockAmazon’s rivals are taking stock of its newfound aggression on this front.

Future Group CEO Kishore Biyani said the discounts were a customer acquisition strategy. “It remains to be seen how long they can sustain this, since there are hardly any margins in the category to offer such discounts. Plus, it’s still not a full assortment play,” he said.

Biyani’s Big Bazaar chain is known for its discounts, but Amazon’s prices are lower on most products. Online grocery store Grocermax cofounder K Radhakrishnan said the retail segment is going to be the focal point of efforts to gain repeat customers at almost negligible cost.

“Amazon has figured this out for sure. In the UK, they have made headway with grocery delivery and hope to be over 5 per cent share by 2020, challenging Tesco. It needs first a will on the part of the big online players to make it the core offering of the site and it will be a game changer,” he said.

Albinder Dhindsa, cofounder of online grocer Grofers, said deep-discounting strategy was to have been expected but it will face competition.

“We expect local retailers will get more aggressive in countering this threat in the near future,” he said. Amazon, which has been challenging Flipkart for the ecommerce top spot in India, advanced its festive season sale by a day to October 1, sweetening deals with gift vouchers.

Rivals Flipkart and Snapdeal started theirs a day later. Flipkart is in talks with the world’s biggest retailer Walmart for a partnership to compete with Amazon with a focus on the FMCG segment.

Snapdeal too is trying to expand its focus in FMCG, while pure-play grocery ecommerce firms like Big Basket and Grofers offer discounts but mostly in line with brick-and-mortar stores.

Amazon founder Jeff Bezos said in June that the company plans to invest an additional $3 billion in India, taking the overall investment pledge to $5 billion in the last two years.

The company, which has started its Prime service in India, plans to launch its video offering in the country shortly.